EMMA ALBERICI, PRESENTER: After the Queensland floods of 2011, the Federal Government commissioned the Natural Disaster Insurance Review to help protect all those whose homes were potentially vulnerable to future flood disasters. One of the concrete outcomes of that review was a nationally consistent definition of flooding to be applied across all insurance policies. In the current crisis the total claimed losses are around $50 million, a figure that will almost certainly go substantially higher.

To discuss the insurance implications of the latest East Coast flooding crisis I was joined just a short time ago by Rob Whelan, the chief executive of the Insurance Council of Australia.

Rob Whelan, welcome to Lateline.

ROB WHELAN, CEO, INSURANCE COUNCIL OF AUSTRALIA: Thank you.

EMMA ALBERICI: So can you tell us what the standard definition is for a flood in the insurance business?

ROB WHELAN: Yes, that's just been implemented just recently as a consequence of the various reviews that took place after the natural disasters of 2011. The standard definition in simple terms is quoting that any land that is normally dry that is inundated by water, whether it comes from a dam, a reservoir, rainfall or a river bank, will be considered to be flood.

EMMA ALBERICI: So now we know what a flood is, but that's sort of cold comfort for those people who simply can't get policies anymore to cover that.

ROB WHELAN: Well I'm not sure that's actually right. About 80 per cent of all policies in the marketplace today actually do provide flood cover and that's total flood cover. That includes floods that come from rivers or floods that come from storms and heavy rain. So 80 per cent of policies do do that. Now that's increased from about 50 per cent of policies in 2010-'11. So the industry has worked very hard to rollout a very comprehensive offer into the marketplace for flood cover. So it is available.

EMMA ALBERICI: But we've heard from many people in the Bundaberg district, for instance, who have farmland who say the two biggest rural insurers, being WFI and Elders, simply won't cover them for flood damage.

ROB WHELAN: Well they will provide a level of cover, maybe not those particular insurers because they will have certain caveats around what they are prepared to take in terms of risk, but there is a wide range of insurers out there who will provide cover and that goes down to rural packages that are available. So I can't comment on individual circumstances, but there is a wide market out there and people are encouraged to shop around and try and find alternative suppliers if they can't get it from their normal suppliers.

EMMA ALBERICI: Well of course those that can get insurance that we've spoken to say the cost of the policies are now prohibitive, particularly in the areas that have been hit twice in 2011 and again now. We spoke to two families with homes valued at between $400,000 and $500,000. They've been quoted between $8,500 and $19,000 for flood coverage over the last couple of years. I mean, how do they cope with that?

ROB WHELAN: Well that would be their total policy, but what that coverage actually includes is a wide range of risks, not just flood. So it also includes fire, theft and other damage, storm damage, so not just flood. So it's a broader set of coverage that they're looking for. And what the price actually reflects is the actual risk. So the insurance companies are now reflecting the true risk, and as you said, those properties that have flooded before, many of these properties have flooded probably two or three times in certain parts of Queensland in the last five years - two or three times. So now the price is actually reflecting the true risk and insurers really have to charge the right price otherwise they won't have the premiums to be able to pay the claims.

EMMA ALBERICI: But of course back then the industry was telling people this was a one-in-100-year event.

ROB WHELAN: Yes, this is a bit of a misnomer in terms of what that actually means. That actually means there's a one per cent chance every year - one in 100, one per cent chance - every year of your property being damaged by some kind of flood. Now that compounds year after year after year. So the next year, it's greater than one per cent; the year after that, greater than that again and so on. So the risk actually increases incrementally over time. So, one-in-100-year risk is a kind of complex way of saying that you have a one per cent chance of that every year compounding until the point in time when it actually gets a very high risk indeed.

EMMA ALBERICI: Queensland's biggest insurer Suncorp stopped insuring homes and their contents in the towns of Roma and Emerald after the 2011 floods altogether. Is it likely now do you think that people in placing like Ipswich, Gympie, towns in the Lockyer Valley, could they now be faced with insurers saying we're no longer going to cover you at all?

ROB WHELAN: No, I don't think that is a possibility, so people should rest assured about that. But the risk there was about the insurer identifying that there was this constant inflow of floods into those particular communities and those communities, local councils, etc., were doing nothing about mitigating that risk, about preventing that risk. And that insurer's actually done an analysis of those communities that actually have put in levee banks against floods versus those that haven't and the premiums are about 60 to 70 per cent cheaper. So mitigation actually works and actually reduces the price. So what that particular insurer was faced with was a community that did nothing to prevent the risk or lower the risk. So, they said no more new business until you do something about it. That's the issue that needs to be resolved is mitigation is the key to dealing with this problem going forward because floods are not going to go away. They will return year after year. Precisely when we can't tell you, but they will come back and we need to do something about mitigating that risk.

EMMA ALBERICI: Well how have the flood mitigation efforts goon as far as local and state governments are concerned in Queensland since 2011?

ROB WHELAN: Well they've certainly improved in recent times in Queensland, so I think the Queensland Government has allocated something in the order of $40 million to mitigation, which is great news. Other state governments have done something as well. NSW, for example, historically has actually put in levee banks around certain communities like Lismore and Grafton. They were actually protected from this recent flood because they had levee banks protecting them. So the damage was minimal compared to what's happening, say, in Bundaberg which is a catastrophe in Bundaberg. Those people are not protected, they're exposed to that risk. It's an enormous flood. The water's moving very rapidly there. So those poor people are really exposed and something in the order of 2,000 households have now been damaged.

EMMA ALBERICI: What you're saying seems a little inconsistent with other comments from the Insurance Council this week which suggests that there hasn't been a lot of mitigation done in some of those areas that have been hit twice.

ROB WHELAN: Well, nowhere near enough. $40 million is good, but it needs way more than that. Let's take a levee, OK? - $15 million roughly to build a levee, but that may actually save that community $100 million in damage. So the return on investment for mitigation works as simple as a flood levee is actually really high and that's why we're saying, yes, $40 million is a good start. I know it's difficult times for governments and communities, but it is actually a good investment to save having to replace and repair; why don't we prevent in the first place?

EMMA ALBERICI: Can you put a dollar value on what needs to be spent?

ROB WHELAN: No, I can't because it would take us quite a while to actually work through what specific types of mitigation works are possible. Not every risk can be mitigated. There are certain things that we can't stop. We can't stop a cyclone blowing in, but we can build buildings more efficiently and more effectively to protect those buildings from the damage that they might incur. Plus we can also think better about land use and planning so that we're not actually putting more and more at-risk homes in the way of these major perils. And they are gonna continue to occur and if we could continue to develop then we'll have more and more damage and more cost.

EMMA ALBERICI: But it's safe to say if you can't put an exact figure on it, it's safe to say $40 million is well and truly not enough.

ROB WHELAN: I don't think it's enough, no, but it's a good start and we would encourage people to do more about that and to encourage communities to take more interest in how they can go about mitigating their risks because it does come down to the community at the end of the day.

EMMA ALBERICI: Can I just understand what you're saying here? Could some of the damage from these latest floods have been prevented by greater attention to levee banks and other mitigation?

ROB WHELAN: Most definitely, yes. And that applies to places like Ipswich and Brisbane for that matter. Mitigation works and control of certain flood areas and prevention of development in certain areas actually will increase the overall level of protection in the community and lower the overall level of risk, which goes to the premiums and the costs. At the end of the day it's about how much it costs to repair and restore a community and if you've mitigated that risk, the costs are less and that's a simple equation.

EMMA ALBERICI: There seems to be a bit of a conflict of interest for a local council, for instance, though because you're going to get a lot of money from members of the community wanting parcels of land close to the coast and close to water areas and yet you also have this onus of responsibility to ensure they are not built, as you say, in disaster-prone areas?

ROB WHELAN: Well I just think they have to be prudent about it because at the end of the day there's a cost and it's not just materials and buildings that are a cost, it's people. People die in these sorts of things and I think everybody has a responsibility to do what they can to prevent the risk as much as they possibly can. It's not just about insurance, it's about community lives and people and that I think's very important to take into that equation.

EMMA ALBERICI: Do you think it's about time there's a bit of burden shifting here because it's the insurance companies and the Federal Government so far that seem to bear a lot of the burden in terms of economic - making up for the economic losses of families. But it seems you're suggesting that there's a role here also for local and state government.

ROB WHELAN: I think all levels of government. So, local government has a lot of the information and the material, they have the flood maps so they know the local environment, they know the local infrastructure so they've got the best information to determine what's best to do in terms of mitigation works. State governments have a vested interest in that being done and federal governments also have a vested interest rather than paying after the event, they actually put funds towards preventing the event in the first place. As I said, there's a huge return on investment for spending those dollars in prevention rather than restoration. So I think all levels of government basically have a responsibility to do something there.

EMMA ALBERICI: What role does climate change play in your industry's forecasts now, especially given a recent global survey by reinsurer Swiss Re says the cost of floods has doubled in the past 10 years and I think in the past 40 years the cost is up more than 10-fold.

ROB WHELAN: Yes, that's true. And whether you subscribe it to climate change or the fact that we've actually increased in terms of population and the level of development and particularly in places that are vulnerable to flooding events. Look at the coastal development all along the East Coast of Australia. Lots of it is around coastal river districts and systems. They're all subject to flood. And in fact most of them are actually on flood plains. So they will flood regularly and in fact are flooding regularly. So, it's not so much that there's more frequent storms or more violent storms - certainly in our lifetime we're seeing some of that - but it's also that we're putting far more infrastructure in its way. So if you continue to build developments on a flood plain, ultimately they're going to be affected and that's what we've been doing for the last 20, 30, 40 years.

EMMA ALBERICI: And so finally, how do these people start again and is the advice not - simply not to build in those low-lying areas again?

ROB WHELAN: My advice would be think very hard about what you do in terms of your location. I think councils should think very hard about what their development plans are and their town planning and where they put these developments and what type of structures do we put there? Remember the old Queenslanders were all built on stilts and if you look at the television footage, you'll often see people sitting on the veranda watching the flood go by underneath their house because they're on stilts. So much of the development recently has been concrete slabs right next to the river. They're gonna flood. The old Queenslanders sit and watch the flood go by and then get back on with life.

EMMA ALBERICI: OK, Rob Whelan, we've run out of time. Thanks so much for coming in this evening.